Global crude steel production in June rose by 1.9% over the previous year to 132 million tonnes, lower than the 2.6% growth achieved in May, according to data released by the World Steel Association. But the extent of the slowdown in June is visible when comparing sequential performance, as output has declined by 3.2% compared to growth of 2.8% in May. The culprit is not China alone. Even after excluding the country’s output from the total, steel output has declined by 2.9% sequentially.

These figures come at a time when global economic growth forecasts are being downgraded, especially countries in the emerging market category. In July, the International Monetary Fund (IMF) issued a gross domestic product (GDP) growth forecast of 3.1% for 2013, down from its April forecast of 3.3%. Steel guzzler China’s GDP growth forecast was cut from 8.1% to 7.8%.

In June, China’s crude steel output declined by 3.2% over May, with other parts of Asia doing worse, contributing to a 3.4% decline. Not a single region managed to boost output in June. The European Union’s steel output declined by 3.2%, but the Commonwealth of Independent States managed better with a 0.9% decline. North American steel output declined by 2%. On the positive side, the industry has been holding utilization levels down, with capacity utilization in June at 79.2% compared with 80% in April.

Now, if output seems to point to a worrying trend, iron ore presents a contrasting picture. Big global companies such as Rio Tinto Plc. and BHP Billiton Ltd have reported output in June that either meets or is higher than forecasts. What’s more, spot iron ore prices have been trending up, despite the big miners producing more of the same and steel makers seeing slower growth in output.

So, are the June steel data numbers just an aberration? Since 1 July, iron ore prices rose by 12.7% to $132 a tonne (Chinese imported iron ore prices, 62% iron grade) according to Bloomberg. Chinese flat steel spot prices are up by 3.7% in local currency terms while prices in India are up by 2% since early July.

Generally, a firm trend in spot iron ore prices can contribute to a similar trend in steel prices, although with a lag. If the uptrend in iron ore prices continues, and steel prices perk up as a result, that may be some good news for domestic integrated steel makers. Add to that the extra rupees accruing to them due to a strong dollar. These are small positives at a time when domestic demand conditions remain weak due to underlying demand conditions in user industries.

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